Wednesday, September 28, 2016

The U.S. Court of Appeals for the Ninth Circuit, in a case of first impression and the first published circuit court opinion to address the issue, recently held that each and every debt collector -- not just the first one to communicate with a debtor -- must send the debt validation notice required by the federal Fair Debt Collection Practices Act ("FDCPA").

A consumer financed the purchase of her automobile, but stopped making payments on the loan. A debt collection company sent her a letter trying to collect the debt, to which the debtor did not respond. The debt collector hired a law firm to collect the debt, which sent the debtor another collection letter.

The debtor filed a putative class action alleging that the law firm violated 15 U.S.C. § 1692g(a) of the FDCPA by not informing the debtor that if she disputed the debt, she had to do so in writing.

As you may recall, section § 1692g(a) requires a "debt collector" to notify a debtor either in the "initial communication" with a consumer incident to collecting a debt or within 5 days thereafter, of the amount of the debt, the name of the creditor, that the consumer can dispute the debt in writing within 30 days after receiving the initial notice, that if the consumer does so, the debt collector will obtain verification of the debt and mail a copy to the debtor, and that if the debtor requests it in writing within the 30-day period, the debtor collector will provide the name and address of the original creditor, if the debt has been sold.

The parties filed cross-motions for summary judgment. The law firm argued that it was not required to comply with § 1692g(a) because its letter was not the "initial communication" with the debtor. The district court agreed and granted summary judgment in its favor. The debtor appealed.

On appeal, the debtor argued that § 1692g(a) requires that each and every debt collector that communicates with a consumer send the "validation notice." The Consumer Financial Protection Bureau ("CFPB"), the agency charged with rulemaking authority under the FDCPA, and the Federal Trade Commission ("FTC"), which has concurrent authority to enforce the FDCPA, filed an amicus curiae brief agreeing with the debtor's interpretation.

The Ninth Circuit began its analysis with the statutory text, explaining that under well-recognized rules of interpretation, "[i]f the operative text is ambiguous when read alongside related statutory provisions, we 'must turn to the broader structure of the Act,' … and to its 'object and policy to ascertain the intent of Congress."

If the plain language of the statute, its structure and purpose clearly reveals Congress' intent, the court's inquiry stops there. However, "if the plain meaning of the statutory text remains unclear after consulting internal indicia of congressional intent, [the court] may then turn to extrinsic indicators, such as legislative history, to help resolve the ambiguity."

The Court found that the text of § 1692g(a) is ambiguous because "Congress did not define the term 'initial communication' or the word 'initial.'" It noted, however, that "Congress did define 'communication' to mean 'the conveying of information regarding a debt directly or indirectly to any person through any medium… [and] [t]his definition … is broad enough to sweep into its ambit both" the initial letter from the debt collector and the second one from the law firm.

After parsing the statutory language and still finding the text ambiguous, the Ninth Circuit turned "to the broader structure of the FDCPA to determine which initial communication triggers the validation notice requirement — the first ever sent or the first sent by any debt collector, whether first or subsequent."

The Court concluded that interpreting the text of § 1692g(a) "in the context of the FDCPA as a whole makes clear that the validation notice requirement applies to each debt collector that tries to collect a given debt", reasoning that its "interpretation is the only one that is consistent with the rest of the statutory text and that avoids creating substantial loopholes around both § 1692g(a)'s validation notice requirement and § 1692g(b)'s debt verification — loopholes that otherwise would undermine the very protections the statute provides."

Having found that Congress intended that "each debt collector send a validation notice with initial communication is clear from the statutory text," the Ninth Circuit reasoned that it was not necessary to consult "external sources to interpret § 1692g(a)," but even if any ambiguity remained, "the external indicia of Congress's intent eliminate it."

In particular, the Ninth Circuit stressed that the "Senate Report's description of the validation notice suggests that Congress intended it to apply to each debt collector's first communication." The Court also highlighted the FDCPA remedial nature and that "the legislative history also shows that Congress's sole goal in enacting § 1692g(a) was consumer protection. … Nothing in this legislative history suggests that Congress thought consumers needed less protection from successive debt collectors or less information as their debts passed from hand to hand."

After applying "the tools of statutory construction", the Ninth Circuit held "that the FDCPA unambiguously requires any debt collector — first or subsequent — to send a § 1692g(a) validation notice within five days of its first communication with a consumer in connection with the collection of any debt."

Accordingly, the Ninth Circuit held that the trial court committed error by determining that because the law firm was not the first debt collector to communicate with the debtor, it did not have to send the validation notice, and the case was reversed and remanded.

Tuesday, September 27, 2016

The Court of Appeal of the State of California, Second District, recently affirmed the denial of injunctive relief to a borrower who claimed a violation of Cal. Civ. Code § 2924(a)(6) of the California Homeowner's Bill of Rights (HBOR), holding that injunctive relief is only available under two specific HBOR provisions where the state legislature explicitly authorized such relief – i.e., Cal. Civ. Code §§ 2924.12(a)(1) and 2924.19(a)(1).

Because the borrower's allegations did not fall under either of those sections, the Court held that the borrower was not entitled to injunctive relief.

Following the commencement of a nonjudicial foreclosure against a borrower, the borrower filed suit seeking an injunction to prevent the foreclosure.

The borrower alleged that the deed of trust was assigned and transferred in a manner that rendered such assignments void due to what the borrower alleged were "numerous breaks and misrepresentations in the chain of title." For instance, the borrower asserted that his loan was allegedly transferred from a second mortgagee to a third mortgagee on March 23, 2011, yet the original mortgagee's beneficiary recorded an assignment four months later, purporting to transfer the loan to the second mortgagee.

On April 19, 2014, the third mortgagee recorded and filed a Substitution of Trustee, and the newly substituted trustee immediately filed a Notice of Default on the loan.

The borrower asserted, among other things, that the mortgagees lacked standing to foreclose because they were not property assigned an interest in the deed of trust, citing Cal. Civil Code § 2924(a)(6), and for breach of contract due to the mortgagees' alleged failure to enter into a permanent loan modification after the borrower successfully made three trial loan modification payments.

The trial court sustained the mortgagees' demurrers (motions to dismiss), dismissed the borrower's suit, and entered a judgment of dismissal without leave to amend. The instant appeal followed.

As you may recall, Cal. Civil Code § 2924(a)(6) provides that only the holder of the beneficial interest under a mortgage or deed of trust may foreclose. In the HBOR, the California Legislature authorized a private right of action to enjoin a nonjudicial trustee's sale where a lender violates any one of nine statutory provisions.

Under Cal. Civil Code § 2924.12(a)(1), a borrower may bring an action for injunctive relief due to a material violation of Cal. Civil Code §§ 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17. Under Section 2924.19(a)(1), a borrower may bring an action for injunctive relief due to a material violation of Sections 2923.5 or 2924.18.

The Appellate Court began its analysis by noting that while the HBOR did not apply retroactively, HBOR's provisions were applicable to the subject action, because the April 9, 2014 Notice of Default was recorded after the January 1, 2013 effective date of the HBOR.

The Court then pointed out that while the HBOR is applicable to this case, Section 2924(a)(6) -- the statutory provision specifically cited by the borrower -- is not one of the nine sections that explicitly provides for injunctive relief.

Because the Legislature chose to provide for injunctive relief for some HBOR violations, but not for others, the Court found that such relief is not impliedly available for an alleged violation of Section 2924(a)(6).

The Appellate Court then reviewed the legislative history of the HBOR, finding that the HBOR's enforcement mechanisms were drafted to avoid "frivolous claims" and attempts to "merely delay legitimate foreclosure proceedings." Significantly, the Conference Committee Reports stated that while damages are available postforeclosure, prior to a foreclosure sale the only remedy that a borrower may seek is an action to enjoin a violation of the specified sections, along with any trustee's sale. The Court thus found a clear indication that the Legislature intended to preclude borrowers from seeking to enjoin a foreclosure sale for reasons other than those expressly authorized.

The Court then addressed the apparent tension with the California Supreme Court's recent holding in Yvanova v. New Century Mortgage Corp., 62 Cal. 4th 919 (Cal. 2016). In Yvanova, the California Supreme Court recognized a cause of action for wrongful foreclosure under a similar set of facts. In Yvanova, the California Supreme Court held that after a foreclosure, a borrower may potentially "base an action for wrongful foreclosure on allegations a purported assignment of the note and deed of trust to the foreclosing party bore defects rendering the assignment void." See Yvanova at 923.

Here, the Court distinguished Yvanova on two grounds. First, the instant appeal was not a wrongful foreclosure but an action brought preemptively to enjoin a foreclosure, which Yvanova did not address. Second, Yvanova involved a foreclosure that preceded the effective date of the HBOR and thus did not address the effect of that legislation. The Court noted that the borrower may have a postforeclosure cause of action for damages under Yvanova; the Legislature appears to have simply made a policy decision as to preforeclosure injunctive relief, where foreclosure delays may occur due to litigation, even where the lenders are ultimately vindicated.

Next, the Court rejected the borrower's argument that he should have been given leave to amend his complaint to allege violations of Cal. Civil Code § 2923.17, as the declarations required by that section were all properly filed below. The Court noted that nothing precludes the borrower from challenging the substance of those declarations in a postforeclosure suit, which the Court held is the borrower's exclusive remedy for the alleged violations under the HBOR's statutory scheme.

Finally, the Court rejected the borrower's breach of contract claim, finding the claim barred under the two year statute of limitations for breach of an oral contract. Cal. Code Civ. Proc., § 339). Accepting the borrower's allegations as true, the latest date the breach of contract suit could have accrued was March 23, 2011; however, the original complaint was not filed below until August 13, 2014, over three years after the alleged breach.

Thus, the Appellate Court held that the plain language and legislative history of the HBOR does not authorize a court to enjoin a violation of Section 2924(a)(6), and therefore no injunctive relief is available for a violation of that section.

Moreover, the Court held that the borrower failed to show a reasonable possibility of amending his complaint to plead any of the authorized grounds for injunctive relief under the HBOR.

Accordingly, the trial court's judgment of dismissal was affirmed on all counts.

Wednesday, September 21, 2016

The U.S. District Court for the Northern District of California
recently held that an individual had Article III standing to bring a federal
Telephone Consumer Protection Act (“TCPA”) claim against a bank because the
individual sufficiently alleged a concrete and particularized injury.

However, the Court warned that not just any alleged violation of
the TCPA will necessarily give rise to Article III standing. The Court found persuasive the allegations
here that the bank supposedly made voluminous calls to the individual even
after the individual supposedly requested the bank to stop calling him because
he was not the debtor.

The plaintiff alleged that during a twelve day period the
defendant bank called him at least 42 times on his cellular phone using an
autodialer and/or an artificial or prerecorded voice in an attempt to collect a
consumer debt. He alleged that he
received at least 3 calls a day during this time period and provided a chart
detailing the date and time of the calls.

Furthermore, the plaintiff alleged that he did not give the bank
prior written consent to make these calls and repeatedly requested that the
bank stop calling, informing the bank that he was not the individual it was
attempting to contact. Prior to receiving these calls, he allegedly never
had any contact with the bank and did not provide them with his phone number.

The individual filed a putative class action under the TCPA and
the Rosenthal Act, a California statute paralleling the federal Fair Debt
Collection Practices Act. The bank moved
to dismiss and to strike the complaint arguing that the individual failed to
allege standing, failed to state a claim, and used improper fail safe class
definitions.

The U.S. District Court for the Northern District of California
first addressed the issue of Article III standing under the recent Supreme
Court of the United States ruling Spokeo, Inc. v. Robins, 136 S. Ct. 1540
(2016).

As you may recall, to establish standing under Spokeo, a
plaintiff bringing a statutory violation must still allege a concrete and
particularized injury. The bank argued
that the plaintiff merely alleged a procedural violation without concrete harm
or injury, while the individual argued that the phone calls were harm in the
form of involuntary telephone and electrical charges, aggravation, nuisance,
and invasion of privacy.

The Court noted that district courts have not reached a
consensus on whether a plaintiff's allegations that she received annoying and
unwanted phone calls in violation of the TCPA is sufficient to establish
Article III standing since Spokeo was decided. Some courts found that allegations of an
autodialing system to call thousands of phone numbers to promote its products
was in it of itself a concrete injury under the TCPA because the allegations
required plaintiffs to waste time answering or otherwise addressing the calls,
and because the calls made the phones unavailable for other calls.

In contrast, the Court here noted, other courts have found that
a plaintiff who alleged voluminous phone
calls from a debt collector could not establish standing under the TCPA because
she could not show that any individual phone call had caused sufficient lost
time, aggravation, and distress to constitute a concrete injury.

After weighing these contradictory opinions, the Court held that
the present individual had pled sufficient facts to show that the unwanted
calls he received were an annoyance that caused him to waste time.

However, the Court warned that any alleged violation of the TCPA
will not necessarily give rise to Article III standing. The Court cited calls made to a neglected
phone that go unnoticed or calls that are dropped before they connect as an
example of allegations that may violate the TCPA but not cause any concrete
injury.

The plaintiff here alleged that he received at least 42 unwanted
and unsolicited phone calls from the bank, getting multiple calls a day. Furthermore, the plaintiff here alleged that
he repeatedly requested that the bank stop calling, supposedly informing the
bank that he was not the individual they were attempting to contact, but that the
bank continued calling. The Court found
these allegations, if proven true, to show that the individual wasted his own
time and energy dealing with the unwanted phone calls.

The Court explained that even a single phone call can cause lost
time, annoyance, and frustration -- but especially so where the recipient
receives repeated, regular phone calls from the same number and asks the caller
to stop, but due to the call pattern, nevertheless worries about and
anticipates additional calls.

Accordingly, the Court held that the plaintiff’s allegations
that he received numerous and repeated unwanted calls that caused him
aggravation, nuisance, and an invasion of privacy, even after he supposedly
asked that the calls be stopped, was sufficient to allege a concrete and
particularized injury that establishes Article III standing under Spokeo.

Next, the Court addressed the individual’s standing to sue under
the Rosenthal Act. The Rosenthal Act
defines "debtor" as "a natural person from whom a debt collector
seeks to collect a consumer debt that is due or owing or alleged to be due and
owing from such person." Cal. Civ. Code § 1788.2. The bank argued that the plaintiff could not
bring suit under the Rosenthal Act because only the actual debtor could bring a
claim under the Rosenthal Act.

However, the Court disagreed.
The Court noted that the plaintiff alleged that he asked the bank to
stop calling him and that he was not the individual they were attempting to
contact. However, the bank allegedly
continued to contact the individual seeking to collect a debt. Consequently, under these allegations, the
Court determined that whether or not the individual was the debtor was in
dispute and consequently the plaintiff had standing to bring a claim under the
Rosenthal Act.

Relatedly, the Court analyzed whether the individual failed to
state a claim under the Rosenthal Act.
The plaintiff brought his claim under sections 1788.11 (d) and (e) which
prohibit a debt collector from causing a telephone to "ring repeatedly or
continuously to annoy" and from communicating with a debtor with
"such frequency as to be unreasonable and to constitute an harassment to
the debtor under the circumstances." Cal. Code §§ 1788.11 (d) and (e).

The Court disagreed with the bank’s argument that the individual
failed to state a claim under the Rosenthal Act because he alleged only that he
received a large number of calls and made no allegations regarding the content
of any call. To the contrary, the Court
noted that the plaintiff not only alleged that there was a large volume of
calls, but that the individual alleged a pattern of calls and alleged that he
informed the bank to stop calling him because he was not the individual they
were attempting to contact.

The Court was satisfied that these allegations constituted
harassing behavior under the Rosenthal Act.
Consequently, the individual’s allegations stated a potential claim
under this California statute.

Last, the Court denied the bank’s motion to strike the class
definition because it was premature. The
Court reasoned that these issues are best addressed through a class
certification motion after some discovery has been conducted.

Thus, the Court denied both the bank’s motion to dismiss and the
motion to strike.

Sunday, September 18, 2016

The Court of Appeal of the State of California, Third Appellate District, recently held that an order denying interim attorney fees under Cal. Civil Code § 2924.12, which is part of the California Homeowner Bill of Rights, is not an appealable order.

The plaintiff borrower obtained a mortgage loan, which was subsequently modified, but the plaintiff defaulted on the modified loan also. The defendant mortgagee recorded its notice of default. The plaintiff borrower requested another modification but did not submit the required documentation. The property was set for foreclosure sale.

The plaintiff borrower filed a complaint against the defendant mortgagee alleging a violation of the California Homeowner Bill of Rights (CHOBR) as the mortgagee supposedly recorded its notice of notice of sale while a loan modification was pending. The plaintiff presented evidence that indicated the defendant issued the notice of trustee's sale before it issued any determination of the plaintiff's eligibility of a loan modification.

The plaintiff also applied for a temporary restraining order, which the trial court granted. The plaintiff then applied for a preliminary injunction to enjoin the sale of the property. The trial court granted the injunction as it found the plaintiff borrower met his burden to demonstrate a likelihood of success on the merits and he would suffer great injury if his property was sold at the foreclosure sale. The injunction was to remain in place until the defendant corrected and remedied the allegations.

As the preliminary injunction was in place, the plaintiff moved for attorney fees as the prevailing party. The trial court denied the request for interim attorney fees and the plaintiff appealed the order.

On appeal, the mortgagee argued the trial court's order denying the borrower's motion for interim attorney fees under the CHOBR was not an appealable order.

As you may recall, under California's 'one final judgment' rule, a judgment that fails to dispose of all the causes of action pending between the parties is generally not appealable. A final judgment terminates the litigation between the parties on the merits of the case and leaves nothing to be done but to enforce by execution what has been determined. A recognized exception to the 'one final judgment' rule is that an interim order is appealable if: (1) the order is collateral to the subject matter of the litigation, (2) the order is final as to the collateral matter, and (3) the order directs the payment of money by the appellant or the performance of an act by or against appellant.

Here, the Appellate Court noted that the plaintiff's notice of appeal was filed before a final judgment, and that a trial on the merits might show that the preliminary injunction was improper.

The Appellate Court also found that the trial court's order denying interim attorney fees is also not appealable as a collateral order. The Appellate Court noted that the trial court's order did not direct the payment of any money, nor did it compel an act by or against the plaintiff. Instead, the Appellate Court noted, the trial court's order merely represents a denial of attorney's fees that is not appealable as a collateral order.

The Appellate Court rejected the plaintiff's reliance on Moore v. Shaw (2004) 116 Cal.App.4th 182. The Court noted that, in Doe v. Luster (2006) 145 Cal.App.4th 139, the same appellate court that rendered the decision in Moore v. Shaw "considered its earlier decision in Moore and held Moore should not be construed to allow an appeal from an interim attorney fee award." The Appellate Court noted that Moore did not address the issue of whether an order denying the request for attorney fees was appealable, and thus was not applicable to the case at hand.

The Court also rejected the plaintiff's reliance on Baharian-Mehr v. Smith (2010) 189 Cal.App.4th 265. The Appellate Court noted that "Baharian–Mehr did not consider whether an attorney fee order is appealable by itself. (Ibid.) Thus, Baharian–Mehr does not undermine our conclusion that the order denying interim attorney fees in this case does not constitute an appealable order.".

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